Britannia Industries Limited analyst Q&A

So firstly, just wanted to understand on the West Asia issue. What has led to the stand-alone growth being lower at 6.5% versus the 12% growth that we had witnessed in November, December and 9% in Jan and Feb? If manufacturing was hit in Oman and the other region, then would that not be sitting in the consol sales numbers? So I wanted to understand what has led to the stand-alone sales number also being lower.

So thank you, Mihir. So like we said, we did not have manufacturing issues in West Asia. We manufactured but we were not able to dispatch. But I think your answer is on the stand-alone India business in terms of -- yes, so we have done a couple of things. To manage West Asia, like we said, we have moved our manufacturing to Mundra so that we don't have to manufacture ex- Oman because the sea routes that you have ex -Mundra are much more accessible to reach to various markets. So we have done that. I assume your other question is on the domestic India business and in terms of what is the reason for the sales number that we have shown. So we had, like we said, a reasonable first 2 months in the quarter. The West Asia impact hit us in March. But if you take a look at an overall level, see, there is a certain challenge post the GST transition. And I would just like to highlight to you what happened. You see, close to 60%, 65% of the biscuits that we sell are at INR 5 and INR 10. And the price transition on that, because of some dual pricing in the market, has caused some challenges in our rural channels and in our wholesale channels because of some dual pricing existing. So as a result of that, we have seen some kind of a transaction slowdown in those channels. But with the pricing getting normalized, we can see that during this quarter, they will get normalized, and hence, volumes in those channels will come back.

Yes. So just to add to what Rakshit is saying, Vipin Kataria this side, So if we split up our business, 75% of our business is basically retailing or B2C and 25% is B2B or wholesale. Now our retailing business, which is basically urban as well as e -commerce, modern trade, out -of- home has done fairly well. But we have a gatekeeper effect in the B2B or wholesale, which is impacted because of this entire GST transition and the dual pricing. And that's where we saw some pressure and that's normalized the growth a bit. But I think we stay at high single, close t o double-digit growth in domestic, and the consumer confidence in the retail part of the business still remains very strong. Whereas the B2B or the wholesale part is where we have a bit of impact.

Yes. And this B2B and wholesale and rural part is anyway going to normalize, and it should get normalized in this quarter as we move on.

Understood. So Rakshit, the confidence of normalization is coming from the other competitor, which had not moved to the INR 5 and INR 10 packs. So, any confirmation if you can share with us?

Yes. So the market is moving. You see also what has happened is the West Asia conflict has introduced inflation, and hence, people are anyway moving to the INR 5 and INR 10 price point and hence the market should stabilize. And like Vipin said, in the non INR 5 and INR 10 segment, we are growing in healthy double digits. So you see biscuits is a unique category. I'm sure that you're also looking at the results of other companies. The INR 5 and INR 10 from a consumer point of view, from a price point doesn't really get impacted, and hence, that market behaves a bit differently and is also highly dependent on how the trade reacts and how the trade stocks you. But the rest of our portfolio is growing in healthy double digits, and we are very confident that in very short period of time, these channels will also come back to normalcy.

Understood. Sir, the high single, early double-digit growth that you indicated was not for March, right? It is for April, I would assume?

Yes, It was for the first 2 months. And then in March, because of our inability to supply from West Asia, that low growth of that market, actually the business from that part was actually negative for the whole quarter, pulled us down.

Got it. So, it seems like you've addressed both the issues or kind of almost there. Any indication of how April and May is shaping up, early days for May, but April has shaping up from that growth point of view?

So, I would not want to give details, but we are quite confident that by the end of the quarter, the market would quite likely stabilize on the domestic front. And like we said, on the West Asia front, we have anyway taken measures to ensure that the supply channels that we have now are not dependent on the Hormuz Strait. So, we are quite confident that we will do better this quarter.

We have a long queue. Can I request to come back for a follow -up, please? Next question is from the line of Abneesh Roy from Nuvama Wealth.

My first question is on the pricing bit. You did say that Parle and other local players will now soon vacate the INR 5 or INR 4.5 and INR 9. In fact, I see Parle still selling at INR 9 on Amazon and e-commerce as we speak. So maybe it is still work in progress. So specific question was what kind of pricing you will need? If local players are vacating INR 4.5, INR 9, you will also need the price hike or maybe grammage cuts. If you could tell us what kind of grammage cuts or price hike is needed as of now? Have you taken some corrective actions already? Because most other FMCG companies have already taken 3% to 5% price hike as we speak. So, if you could give that clarity because in your case, wheat is deflationary and maybe cocoa, etcetera, are deflationary but lot of other things are inflationary. So, if you could give some sense for pricing.

Yes. So, like we said, wheat is a bit deflationary. But like we said, fuel is highly inflationary, laminate is highly inflationary. So let me answer both the parts of your question. So, we see that many of our other biscuit colleagues are moving towards to the full price points, and that is happening gradually as we see. On the other part, yes, selectively, we will have to take price increases, and this includes both grammage adjustment and some of the packs which are above INR 10, some kind of a price increase. So, both of them are factoring.

Understood. Second and last question will be on local players. Other FMCG categories are telling us because of GST rate being lower to, say, 5% in most cases, compliance has dramatically improved. So, if you could tell us in biscuit this was a key benefit. So, ex of whatever INR 4.5, INR 9 coinage issue is there, is there a compliance big improvement? Second is you said you don't sell much of INR 5 and INR 10 on e-commerce. I do see Parle, I have personally also ordered, and right now also, Parle INR 9 is available on Amazon, quick commerce and some of the other e-commerce. So, are you a bit under -indexed on INR 5 and INR 10 on quick commerce? So, is that something you would want to change?

Abneesh, no, no. What I need to say is compared to the other channels, the INR 5 and INR 10 sells lesser on e-commerce. Obviously, I don't think any of the channel partners will come back and say that Britannia did not supply or did not run programs on INR 5 and INR 10. So, what I'm saying is the channel contribution of e-commerce towards these lower price points is much lesser. From a compliance point of view, I think the 5% GST rate will anyway help in compliance, and I don't see an issue there. So, the issue of compliance not improving or changing from the INR 18 to INR 5 price point is not a question for us.

So Abneesh, on the first point, Abneesh, see, we do not proactively push INR 5 and INR 10 on the e-commerce business because the natural disposition of a consumer is to buy premium and impulse, and that's where we have the entire game of upgrading the packs or upgrading the brand. So therefore, we do not actively promote INR 5 and INR 10. The second point on that is that it also leads to a lot of channel conflict, right , And for us to thrive in this omnichannel world, it's very, very critical that we have different assortment being focused for different channels.

Just one clarification. That is my last question. When you say you don't push, what does it mean? For example, I can't see INR 5 and INR 10 on e-commerce based on whatever I have checked . So, you can correct me. Not pushing means no discounting. Is that what you mean? Because I don't see availability also?

Yes. So basically, it works on algo, right, so, I can't see what you can see on your phone, right , But basically, the algo would be based on incentives. And if there is a discount, right, you will see them right up on your screen. So, we do not actively promote them, and therefore, it is only through search mechanism, or if you have bought it previously, that it will be visible. Because there's no point actively promoting these packs. It's always better to put your money behind the premium packs.

Yes. But if anybody wants to complete a basket and also wants to buy packs of INR 10 and INR 5 of Britannia, they will be available.

Just to understand that dual pricing issue. Competition was selling pack for INR 4.5 and INR 9. So does it say -- retailers, I believe we're making higher margins on their packs versus your packs. So, is that the main cause and let's say, because of that, like you could have lost some market share in the interim? And is it fair to say that now that, let's say, the prices have been reinstated at INR 5 and INR 10, let's say, that situation normalizes and the benefit of GST rate cut which are already visible in other categories, will be visible for you only in FY '27? Just to get an understanding of this issue right now.

Okay. So Kunal, you are asking two questions. So, you see, the benefit of GST rate cut will be more visible in packs which are of a higher pricing configuration because the consumer sees that, okay, something was INR 50 is now INR 44, or as it has happened in other companies and categories where you have INR 50, INR 70, INR 100, INR 150 packs where the difference is noticeable. On a INR 5 and INR 10 biscuit, it is not visible so perceptibly because usually what happens is that the consumer buys because it's selling at a particular price point, okay. Now in your first question, in terms of some of the competition selling at INR 4.50 and INR 9 and some of the wholesalers wanting to give more preference, from a market share, let me point out that the price realization is also for those players, INR 4.50 and INR 9 versus INR 5 and INR 10. So, from a value share point of view, if you look at that, I don't think it would make much of a difference. And our own workings on a value share say that the difference is not there. But yes, it could be from a transaction point of view some wholesalers and rural markets would probably want to stop that more because they see an opportunistic moment where they can make a higher margin.

Understood. And does it mean that, let's say, what was not visible in your case, which is benefits of GST rate cut in second half, could be visible in FY '27?, Like maybe if you can share your views on how FY '27 looks like in terms of both growth and margin.

See, in the medium to longer term, the GST rate cut is obviously going to benefit the industry, and Britannia being a leader is also going to benefit that maybe even more. We know that the brand strength that we have and the portfolio that we have across price points will have a positive impact because of this reduction in GST. Now as far as the INR 5 and INR 10 price points that you talked about, with the pricing stabilization, we obviously expect that the channels where we may have felt a bit of pressure will come back to normalcy. And our team is very confident that during the course of the quarter, that movement has already begun and should stabilize. We also know that the biscuit industry starts to have a sequential growth from June onwards when monsoon starts to hit and when children start going back to school. So, we expect those things to start rolling in along with this price of the dual pricing going away as a very positive for us.

Yes. And I think the true parameter is this B2C business, which is 75% like I called out, which is growing at a very good -- healthy clip. So I think that gives us the confidence that as this GST transition and the dual pricing is fading out, even this B2B of 25% of our business will start moving up.

Next question is from the line of Avi Mehta from Macquarie Capital.

Given this kind of clarification that the fuel pricing is likely transitionary and the fact that price hikes are also kind of being taken not just by the industry but by you, could you share your thoughts on whether you expect FY '27 to result in a stronger sales growth than what we saw in FY '26 because of the pricing component? Or basically just trying to appreciate or understand the domestic demand environment.

So, you see, if we take a look at the domestic demand environment, we also have to see how does the year move ahead as far as conditions which are not in our control. So say, for example, whether it is monsoon or whether it is the coming off seasons, they will go on as they are. We are very confident that our portfolio, the strategy that we have in terms of creating demand, the higher advertising spend and the marketing investments that we are doing in the retail trade, along with the strategic levers that I showed you of our stra tegy on premiumization, on future platforms, on the Many Indias that we have created, we are quite confident that we will be able to generate demand and have a good year. But obviously, we have to execute that as the year goes on. But the team is extremel y confident that we will be able to manage the demand environment and come out on top.

If I may probe you a little bit more here, but when you say a good growth, basically, what I'm trying to understand is the pricing something that you believe will have a higher impact, price elasticity or your belief on how it would pan out is what I was trying to garner. That was the key bit, and that's where the question comes from. Not from a numbers perspective, but just your thoughts on how you see pricing elasticity kind of panning out and, in turn, kind of flowing through growth rates for the industry and for us?

So, say, for example, if the players are having to take a price increase, there has already been a price drop which has happened because of GST. So, I think you are coming back to a situation which is somewhat equal to what was there maybe 6 to 7 months back. And the demand situation at that time was quite good. So, I don't think that pricing either a bit upwards or either a bit downwards is going to have any major impact from an elasticity point of view. This category is vibrant. There is a lot of action. And we are confident that even with the small increase in pri ce, which is being necessitated because of the conditions, the demand situation will remain fairly strong.

Got it, got it. And just a bookkeeping. What is the volume growth that we saw in the last quarter, 4Q? That's all from me.

Next question is from the line of Siddhesh Deshmukh from IIFL Capital.

This is Percy Panthaki here. I just wanted to again talk about the top line and the demand. So, two sub-questions in that. One is, you mentioned that the dual pricing, especially in wholesale, et cetera, has been the problem area. Would you be able to give us some kind of rough idea, had that problem not been there, how much -- I mean, how much has that problem dampened the sales growth by? Is it like 200 bps, 500 bps, 700 bps? What's the order of magnitude of that? That's first part of the question. And the second part of the question is that the large food companies that have reported, the other snacking categories like chocolates and noodles, they have sort of shown close to about 30% kind of sales growth in that. So, is it that the consumer behavior is shifting and the type of snacks that they want to sort of consume, there is a little bit of shift in the market share of snacking activity between different categories? Because even if I assume that the biscuit category overall has grown a little faster than you have, it would still not be close to that 25%, 30% kind of mark that these other brands are growing at.

Okay. So Percy, thank you. So you basically have two questions. So obviously, if we take a look at the wholesale and the rural channels where this dual pricing has had an impact, so obviously, it would have impacted our sales. Now it is hypothetical for us to say whether it's impacted by 200 or 300 or 400 basis points. But yes, it did have an impact. Now we also see transactions, and we can see that there has been an impact on transactions. What we are very confident is that with this price stabilizing, that 200, 300, 400, whatever you're saying, is the real number will come back to us.

Maybe, Rakshit, if you can call out what is the kind of growth. Apart from this affected portfolio, what is the growth in the rest of the portfolio, that also could give us some idea of what the growth is tracking at.

The rest of the portfolio which is not impacted, for example, if I take at rest of general trade, if I take a look at key accounts where I'm growing in healthy double digits, okay, If I take a look at modern trade, I'm growing even stronger.

E-commerce is...

Upwards of 50%. Modern trade is upwards of 15%, 16%. So where the consumer is interacting directly, as they used to interact directly also in these channels before GST, our growths are very healthy, which is why we are very confident that this is just a temporary blip. Now for me to put a number of 2%, 3%, 4% will be a bit challenging, but whatever is the loss or shortfall, will get recovered. On your second question, see, I don't think snacking consumption shifts happen so dramatically that chocolates will start growing at 30% and biscuits will slow down. Obviously, what has happened is that the price elasticity of sales for these categories, they have benefited more from the GST reduction. So, if GST reduction is showing a noticeable drop in price because many of these categories are independent of the INR 5 conundrum, obviously, growth will go up. We can also see for ourselves where we have packs which are still at higher price point, where some price drops have happened are showing a higher transaction value and a higher traction. So, I don't think that the consumption shift over 1 quarter is anything to be read. I think it's a function that the true benefit of GST as it was supposed to be is reflecting on those categories earlier and much faster. But I don't think it has got to do anything with a biscuit category versus a different snacking category or a chocolate category.

Got it. May I be permitted to squeeze in one more question?

Well, from our side, you're welcome. Up to the moderator.

Just a quick one. The other expenses growth of 18% on a top line growth of only 7%, what is driving that?

So like we said, we are gradually also upping the investment in brand and advertising. So one of the reasons for that is that we have upped our advertising expenses from last quarter, and we will be investing more vigorously in our brands.

The next question is from the line of Anand Shah from Axis Capital.

Just a couple of questions. So firstly, on the d ual pricing and the Jan, Feb, March growth split. So, this dual pricing did not have any impact in Jan, Feb and it particularly only impacted March. And also, I mean, if you remove the West Asia impact completely on the international business, then would Jan, Feb, March, the core India business that would be steady or that was just throughout the months dragged by this…

No, Anand, I think -- there's an echo.

Sir, I'm sorry to interrupt. Anand, can you mute your line, please?

No, Anand, I think you misread what we said. The impact of the dual pricing has existed through January, February and March. In March, we have to add the specific challenge coming from West Asia. So that's how we read it.

So, if I then split it, so then just purely, if I remove West Asia, then normalized growth would be 9%, 9% for Jan, Feb, March, let's say, for example, I mean, it will be more smooth curve.

Yes, yes, and that would be the impact of dual pricing. So like in the earlier question asked by Percy, if hypothetically, there is an impact of that dual pricing, then if you add that, then that becomes a real growth.

Okay. Perfect. This clarifies a lot. And just lastly, on the RM inflation you are seeing and the price hikes you've already taken, if you can just give a color on that.

I was just asking on a broad basis, you give color on the overall RM, but as an index level, what kind of inflation you are seeing and what hikes you have already taken?

So like we said -- wheat is a positive for us, although like I said, in the last 1 month because of rains and some poor quality of wheat arrivals, the price has gone up. But about 1 month back, so it was good. But it is going upwards. So wheat is going upw ards. Palm oil is also higher, although we are covered, but we know that palm oil has a connection with fuel prices. Sugar is more or less normal. We told you -- you're talking about raw materials so these are the three most important raw materials.

Fuel..

Fuel, of course. Fuel is a challenge for everybody. So, we use LPG, we use CNG, and the inflation on that is openly available in the market, which is also what we are having to pay.

Kindly come back for a follow-up question. Next question is from the line of Arnab Mitra from Goldman Sachs.

My first question was actually on the GST impact on price point packs. So Rakshit, what we have seen in many other food categories is because of the mathematics of INR 5 and INR 10 pack when the GST goes down, your net realization per pack obviously goes up as a company, of course, assuming transactions are same. So, in my understanding, in noodles, chocolates kind of categories, there has been a significant uplift in value growth because of that. Should the same logic not play out in biscuits also whilst the price issue is over? Or do you think biscuits are already different, and therefore, if you give higher grammage, the transactions can actually drop in terms of the number of packs?

No. So, I think biscuits is also a bit impulsive and is also a bit planned purchase. So, if you are giving a bit more biscuit or a bit less biscuit, I don't think from a consumer transaction point of view, it has a bigger impact because it's a part of routine shopping basket, people keep buying it regularly. So, for our biscuit category, the GST change, I think, is very silent unless there is a dramatic shift where you have to reduce the grammage so much or something which becomes noticeable to the consumer, which is not the case here.

Got it. So, my question actually was should you then not see a significant increase in value growth once the transition has happened? Because as a company, you would realize a lot higher on a per pack basis given the lower GST. And therefore, should we not see a much faster acceleration in growth as things stabilize? I'm not saying going back to normative levels, but should it not be significantly above normative levels given this dynamic?

So, you see, we are also positive that we will have a good realization. But because of the issues in the market in the last 4 or 5 months, we have not been able to see in what way this trend will move. But if it happens like that, we are happy that you brought it to the fore.

Got it. And my second and last question was on margins. So, given the cost pressures and also your initiatives on innovation and the strategy, is there any implication for EBITDA margins for FY '27? Could you have some impact as you invest in these and also face cost pressure? Or do you think you have enough cost-saving efforts to mitigate these investments?

So, Britannia has a history of being very tight in its operations and very strong cost -effective program measures, which obviously have been put into fore. And obviously, when we spend, we will also be selective and try and put our marketing mix model in such a manner that while we invest more, we invest where our returns are better. I think there are some learnings that we have from the past, and we will apply that. So, while, yes, the operating environment is tough, the fuel inflation, the laminate inflation is there for us. But the team is confident that within a certain band, we'll be able to manage it.

Next question is from Nihal Jham from HSBC.

A couple of questions. The first is a clarification that when you've mentioned ex of West Asia, is it that both the domestic operations was 9% or...

Nihal, sorry to interrupt. Your voice is breaking. Can you come in a better reception area, please?

Is it better now?

Slightly.

Rakshit, my first question was a clarification that could you clarify that when you mentioned the 9% number, was that the growth for the domestic operations for the Q4 quarter and the impact on the consol growth of 3% was because of the international impact of West Asia?

So, like we said, the domestic business was growing at more or less close to 9%, 9.5%, which we have said. And the small pressure that we had in the month of March was only because of West Asia. And going back to the questions to previous back, to this domest ic growth of 9%, 9.5%, you have to add whatever basis points we have lost potentially because of this dual pricing in these particular channels. I hope that answers your question.

That does. The second was that, obviously, in your presentation, you were reflecting the cost based on the current inventory that you're holding. Just to understand, based on the current inflation because, obviously, the spot prices are much higher than what raw material may be holding, what will be the ballpark inflation that we are facing right now?

So you see, in terms of palm oil, we are covered for the next 5 months. And I think we have a favorable rate against the market. Also on wheat, we are one of the most proactive and aggressive buyers and we have a good reading of the market. So also on wheat point of view, the inventory that we have right now for the next, I believe we are now already covered for about 5.5, 6 months is also at a price which is attractive even if you had the carrying in the inventory cost. So the inventory that we are holding right now is a favorable one.

Two questions. My first question is again on the volume growth bit. So Rakshit, this volume growth number, 5.5%, is in terms of grammage, right? In terms of total grams or whatever kgs, tons?

Yes.

So, if you look at price point packs, 65% and the fact that GST rate was cut quite a bit, that itself would have given like more like 7.5%, 8%. So in terms of number of packs basically, there would be a reasonable decline in this quarter. Is that fair?

So, like we said, a lot of the INR 5 and INR 10 packs sell in the wholesale and rural channels and we can see a result of stress in number of transactions. So your observation obviously is correct, which we are very confident will get corrected as we go ahead in the next few months.

Okay. And is there anything on the competition side, Rakshit? Because there was an interview in the media from number 2 player, which had double-digit volume growth and all. Do you see -- I mean, if you have -- so two parts, one is, on the competition side, what are you seeing? And second, difficult choice, but if you have to make between let's say, growth margins for you versus market share, how will you design your strategy from the next few months perspective, if there is something like that?

So, you see if the number 2 player has said that they are experiencing double-digit growth, then obviously, it could be that they have had a certain volume advantage in these particular channels, which could have happened.

Our understanding is that the 25% for us is as close as 40% for them. So they would have got the advantage, yes.

And secondly, choice between market share and margin. I think we have to keep going stronger on market share, but like we said that we are also adept at managing margins. So it is a careful orchestra which we will play very nicely. It is all I can tell you. We don't want to compromise on what we have. So, we will be much more smarter in our allocation funds, marketing where it makes an impact. So, there's a lot of work happening. And we have growth ambitions, but we will also be able to manage the margin profile.

Next question is from the line of Tejash Shah from Avendus Spark.

Rakshit, on the strategic pillars that you have called out, and you partly answered the question, but the hallmark of Britannia for the last 10 -plus years was relentless focus on cost efficiency. And then that consequence was margin expansion. So, the sense that I got from your commentary so far is that we have reached a scale where we need to reinvest in brands and operations. So, should we say that the band that we are currently is a very comfortable band, and from here on, the nonlinearity that we saw past decade wouldn't be at least in the near future?

So, let me answer the question in this way. The relentless focus on cost and efficiency is now ingrained in the DNA. And even this year, we have a very aggressive plan to do that. But we also realize that we have to create new pillars for growth, and this includes, again, investing in our brands, premiumization, creating new verticals for growth, readdressing India in the way we want to address as Many Indias. So, all that will get added to the fact that we will be very sharp on our cost and the efficiency program. So it's not -- but yes, like we said, as we move ahead, you will need to see new growth vectors for us as we also want to move is a more complete foods company.

Okay. And then just the extension of the point that you made, and that's a part of the strategic pillar also, that innovation adjacency and future platforms. So should we interpret that Britannia will be adding more platforms? Or we believe that because th is ambition has been there for a while but scalability has not come through, so all the adjacencies that you need are already on the table? Or you'll add more platforms in terms of expansion?

So, we will be adding more platforms, and you will hear about that because I think we have to broad base ourselves and there are new opportunities, and I think we need to address those new opportunities in the way that Britannia would want to address them. So, you would hear about them in the future.

Plus, I think we also spoke about some of the signature brands that we have. And those are certainly underleveraged, and that's what we will also need to amplify along with the new platform.

And do you believe that this can be done organically? Or like many of your peers, you will also go inorganic way to bridge the gap?

Can you come again on that? Inorganic play is a part. See, we have not been -- we have not done that, but there is active scanning and there is a very serious intent. But like we said, what we want to acquire has to tick a few boxes for us. Number one, it has to help us do something new. It has to help address a consumer need which we are not addressing or it has to get us some skill or technology or capability which we don't have. Where it ticks some of these boxes, we will be ready. And like we said, we also have created a new platform o n health. So that also would be an active consideration as we will expand this in the coming months.

Ladies and gentlemen, with this, I now hand the conference over to Ayush Agarwal for closing comments.

Thank you, everyone, for spending time with us on the call today. We look forward to interacting with you again in the future. Thank you, and have a good day.

Thank you.

Thank you.

Thank you very much. On behalf of Britannia Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.